| DBS Bank India Limited | ||||
| Ratings reaffirmed at 'CCR AAA / Stable / CRISIL A1+ ' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CCR AAA/Stable’ rating on the corporate credit facility of DBS Bank India Ltd (DBIL). The rating on the certificate of deposits programme has been reaffirmed at CRISIL A1+.
DBIL is a wholly owned subsidiary (WoS) of DBS Bank Ltd., Singapore (DBL; rated ‘AA-/Stable/A-1+’ by S&P Global Ratings [S&P]). The ratings on DBL by S&P reflect the bank’s market position as the largest bank in Southeast Asia and the market leader in Singapore, strong deposit funding, well positioned for higher margins amid rising interest rates and resilient asset quality. These strengths are partially offset by sizable direct exposure to Greater China, where economic prospects have become less certain.
The ratings on DBIL reflect the strong support that it receives from DBL, and DBIL’s healthy capitalisation. These strengths are partially offset by average asset quality and average earnings profile. |
Analytical Approach For arriving at the credit assessment, CRISIL Ratings has considered the standalone credit risk profile of DBIL and has also factored in the expectation of strong support from its parent, DBL. |
Key Rating Drivers & Detailed Description Strengths:
The credit assessment of DBIL reflects expectation of continued strong support from its parent, DBL, similar to the support extended to DBS India branch in the past. DBIL is strategically important to the parent, given the latter’s focus on enhancing and diversifying its presence across Asia. India is one of the key growth markets in the medium to long term. DBIL should benefit from a high level of operational synergies with the parent, including senior management oversight, and common risk management systems and standards and treasury platforms. Support is also expected through representation of DBL’s senior management on DBIL’s board. The parent had regularly infused capital in DBS India branch in the past, and may continue providing need-based financial assistance to DBIL to keep capital ratio above regulatory minimum.
Furthermore, DBL has complete ownership in DBIL, and should maintain its significant majority ownership over the medium term. This, along with shared brand, strong management and operational integration, leads to a high moral obligation on DBL to support DBIL.
Capitalisation remains healthy as reflected by CET-1, overall capital adequacy ratios (CAR), and networth (represents share capital and reserves) of 13.7%, 16.3%, and Rs 10,054 crore respectively, as on March 31, 2022 (12.3%, 15.1% and Rs 8,847 crore, respectively, a year ago). Further, the capital position is supported by regular capital infusion by DBL. In the last seven fiscals, DBIL (including erstwhile DBS India branch) had received around Rs 7,200 crore from the parent including common equity Tier 1 (CET 1) capital and subordinate debt, out of which Rs 1,040 crore and Rs 2,500 crore of CET 1 capital were infused in fiscal 2022 and fiscal 2021, respectively to support the amalgamation. The capital support is expected to continue over the medium to long term. Moreover, asset side risk is cushioned by adequate networth (share capital plus reserves) coverage for net non-performing assets (NPAs), stood at 14.2 times as on March 31, 2022.
On an ongoing basis, DBIL is expected to maintain CET-1, Tier-I and overall CAR above regulatory minimum at all times over the medium to long term.
Weaknesses
After amalgamation with the erstwhile Lakshmi Vilas Bank (eLVB), asset quality deteriorated with gross NPA inching up to 12.9% as on March 31, 2021 from 2.6% a year ago. However, it improved in fiscal 2022 and stood at 9.5% as on March 31, 2022. With a bulk of strain coming from the eLVB’s portfolio, GNPA, on a standalone basis (excluding eLVB portfolio) improved to 1.4% as on March 31, 2022 from 1.8% a year ago. Further, with provision coverage for NPAs (excluding technical write-offs) being high at 84.4%, net NPA stood at 1.6% as on March 31, 2022 (2.8% and 0.5% as on March 31, 2021 and March 31, 2020, respectively). NNPA, on a standalone basis, stood at 0.25%, as on March 31, 2022 as compared to 0.49% as on March 31, 2021.
Incremental lending to vulnerable sectors have been reduced; a focused strategy has been adopted, as per which lending is only to well-rated large corporate groups in select sectors.
Under the RBI August 2020 and May 2021 resolution framework for Covid-19-related stress, the bank implemented restructuring on accounts amounting to Rs 681 crore as on March 31, 2022.
The retail and small and medium enterprises (SME) portfolios are expected to be scaled up over the medium term, leveraging upon the digital platform and extensive branch network of eLVB for growth. Ability to manage asset quality while pursuing growth plans will continue to be monitored.
Bank reported a profit after tax (PAT) of Rs 166 crore in fiscal 2022 as against a net profit of Rs 312 crore in fiscal 2021. Consequently, reported return on assets (RoA) declined to 0.20% in fiscal 2022 from 0.46% a year ago. Profitability in fiscal 2022 was adversely impacted by elevated operating expenses. Any sustained improvement in profitability over the medium term will, likely, be driven by the ability to contain slippages in the corporate portfolio, and ramp up retail and SME business while maintaining adequate asset quality. |
Liquidity: Superior DBIL’s liquidity has been healthy, with liquidity coverage ratio of 131.85% as on July 30, 2022 against the regulatory requirement of 100%. The excess statutory liquidity ratio was 14.38% (Rs 7,246 crore) of net demand and time liabilities. Benefits from access to systemic sources of funds, such as the liquidity adjustment facility from RBI, access to the call money market, reciprocal bank lines, and support from the parent, also support DBIL. |
Outlook Stable CRISIL Ratings believes DBL will maintain significant majority ownership in DBIL and continue to provide strategic, financial, and management support to the latter over the medium term. |
Rating Sensitivity factors Downward factors
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About the Bank: DBL is wholly owned by DBS Group Holdings Ltd (the DBS group), in which the Singapore Government held ~30% stake as on February 10, 2022. DBL is a leading financial services group in Asia and has a growing presence in three key Asian axes of growth: Greater China, Southeast Asia, and South Asia. Apart from commercial lending, it focuses on wealth management, investment banking, and treasury activities. The DBS group made a post-tax net profit of SGD 3.62 billion (approximately Rs 20,406 crore[1]) for the half year ended June 30, 2022. Total assets were SGD 745.6 billion (approximately Rs 42.0 lakh crore1).
DBIL had total assets of Rs 84,362 crore as on March 31, 2022. So far, it has been primarily focusing on corporate credit (mostly in the upper and mid-market segments), but with amalgamation with eLVB, the bank is looking to diversify its business and build its retail and SME franchise over the medium term. It had total net advances of Rs 43,898 crore as on March 31, 2022.
On November 25, 2020, Union Cabinet had approved the scheme of amalgamation of eLVB with DBIL. Subsequently, RBI had also released the final scheme of the amalgamation and announced that amalgamation would come into force on the appointed date i.e. November 27, 2020. All the branches of LVB are functioning as branches of DBIL with effect from this date. [1] Exchange rate used – INR/SGD: 56.37 as on June 30,2022 |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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